California teacher pensions: Brown vows to start debate

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Gov. Jerry Brown responds to a question concerning his proposed 2014-15 state budget he unveiled at a news conference at the Capitol in Sacramento, Calif., Thursday Jan. 9, 2014. A robust economic recovery and surging revenue propelled by voter-approved tax increases has sent California’s general fund spending to a record high, marking a dramatic turn-around for the state. With the an increase in tax receipts, Brown is proposing a spending plan that includes a 8.5 percent increase in general fund spending coupled with a dedication to pay down the state’s debt by more than $11 billion.(AP Photo/Rich Pedroncelli)

SACRAMENTO — In Gov. Jerry Brown’s promise to start paying off California’s massive liabilities, the largest single unfunded debt will not be seeing any additional pay-down in the coming fiscal year.

The unfunded liability for teachers’ pensions stands at more than $80 billion, a gap so large that the fund is projected to deplete all its assets in about 30 years. It is the largest single component of both the state’s unfunded retirement liabilities, which the Department of Finance puts at nearly $218 billion, and of the state’s overall $354 billion in long-term obligations.

The deficit for the nation’s largest educator-only pension fund is so huge it would cost teachers, local school districts, community colleges and the state budget a combined $4.5 billion a year to bridge. The California State Teachers’ Retirement System says it grows by $22 million each day nothing is done.

Brown has no plans to start closing the gap in the fiscal year starting July 1.

Instead, he said he will meet with the key players over the next year to create a plan for long-term solvency. The proposal, which he discussed Thursday as he released his annual budget blueprint, is likely to include higher contributions from teachers whose future pension checks might otherwise be in jeopardy.

The debate “is going to be quite contentious,” said Brown, a Democrat who is up for re-election this year.

Unlike other professions, teachers in California do not pay into Social Security and thus do not receive it when they retire, making their CalSTRS pensions particularly vital.

And unlike the California Public Employees’ Retirement System, which covers a wide range of state and municipal employees, CalSTRS cannot unilaterally increase the amount it collects from state and local governments. CalSTRS contributions can be increased only if the Legislature votes to do so.

While CalPERS plans to boost contribution levels again next month for the third time in the last two years, the 8 percent that teachers pay into the pension fund from their salaries has not changed since 1972. The 8 ¼ percent that school districts pay has not been altered since 1990.

While the state’s share can vary slightly, it has hovered at 5.5 percent including an annual cost-of-living adjustment — about $1.4 billion a year. The state’s general fund contribution to CalPERS is projected to top $1.8 billion next fiscal year.

The bulk of the pension funds’ revenue comes not from contributions but from investment income. And that also is the cause of CalSTRS’ problems.

The dot-com boom led to the fund being fully funded by 1998, but the windfall prompted state lawmakers to increase benefits and decrease the state’s contribution. CalSTRS Chief Executive Officer Jack Ehnes said the fund has been seeking an increase ever since the tech market balloon deflated more than a decade ago, but the bottom really dropped out during the Great Recession.

There is general agreement that the gap cannot be bridged by the rebounding economy alone, said Ehnes and Ryan Miller, a CalSTRS analyst with the state’s nonpartisan Legislative Analyst’s Office.

“There is no silver bullet,” Ehnes said.

The Brown administration says the state cannot afford to absorb the full $4.5 billion annual increase because it would overwhelm other budget priorities. Paying $4.5 billion on top of the current $1.4 billion would eclipse state spending for the University of California and California State University systems combined, according to the legislative analyst.

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